What is the future value of a $900 annuity payment over five years if interest rates are 8 percent?

Solution:

The future value of n is written as

FV = P × [(1 + r)ⁿ - 1]/r

Where P = Value of each payment 

= $900

r = Rate of interest per period in decimal 

= 8% = 0.08

n = Number of periods = 5

Substituting these values in the formula

FV = 900 × [(1 + 0.08)⁵ - 1]/0.08

FV = 900 × [(1.08)⁵ - 1]/0.08

By further calculation

FV = 900 × [1.469 - 1]/0.08

FV = 900 × (0.469)/0.08

So we get,

FV = 900 × 5.866

FV = $5279.94

Therefore, the future value is $5279.94.

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What is the future value of a $900 annuity payment over five years if interest rates are 8 percent?

Summary:

The future value of a $900 annuity payment over five years if interest rates are 8 percent is $5279.94